Arizona Offer in Compromise Overview
If a taxpayer does not have the financial resources available to pay their tax liability, they may want to consider applying for an Offer in Compromise (OIC) over other options. Specifically, an Offer in Compromise is a proposal from an Arizona taxpayer to pay the Arizona Department of Revenue (ADOR) a smaller amount than they owe in full satisfaction of their tax liability.
An offer in compromise works by submitting an Offer in Compromise Statement of Offer form along with other documentation. Therefore, if the Arizona Department of Revenue accepts a taxpayer’s offer and they fulfill the terms of the agreement, the ADOR will discharge forgive the taxpayer’s remaining tax liability. A person may apply for an Offer in Compromise over other resolution options if they owe more tax than they have the ability to pay. Alternatively, you can contact a licensed tax professional to check balances as well.
Eligibility Questions for an OIC Provided by ADOR
The Arizona Department of Revenue advises taxpayers to ask themselves the following questions:
- Do I receive Social Security income, Social Security disability, pension payments or public assistance?
- Am I over age 60?
- Are my total assets worth less than I owe?
- Have I had a significant reduction in income?
- Is my tax owed older than seven years?
- Are my tax returns in full filing compliance?
- Is the business that I was a principal member of defunct and closed?
If a taxpayer answers yes to two or more of these questions, he or she may be eligible for an Offer in Compromise.
Qualifying for an Arizona Offer In Compromise
To qualify for an Offer in Compromise, a taxpayer must meet the criteria set forth in Arizona Revised Statutes (ARS) § 42-1004.B. ADOR must deem the liability uncollectible or the administrative costs of the collection must exceed the amount of the liability.
To be eligible for an Offer in Compromise, a taxpayer must be in full reporting compliance. All income tax returns for the last three years must be filed. If you are operating a business, all business tax filings and licenses must be current.
When taxpayer signs and submits their offer, they agree to the waiver and suspension of any statutory periods of limitations for assessment and collections of the tax liability while:
- the Offer in Compromise is pending
- during the time the offered amount remains unpaid, and
- for one year after the satisfaction of the terms of the agreement.
Applying for an AZ Offer In Compromise
To apply for an offer in compromise, a taxpayer needs to complete the Statement of Offer and send it with any appropriate attachments to the ADOR. It can be delivered in person, given to any field representative, emailed, or mailed to:
Arizona Department of Revenue
Attention: Field Collections
PO Box 29070
Phoenix, AZ 85038-9070
Telephone: (602) 716-7787
Taxpayers or their representatives must complete the application for an Offer in Compromise of individual and/or business tax liabilities. Taxpayers need to make an offer amount and indicate how they will pay the offer including the source of funds. Moreover, taxpayers should indicate any tax liabilities with the IRS and the current status of the account. There are no application fees associated with an AZ Offer in Compromise.
Further Guidance for Businesses
Businesses need to include a signed Statement of Offer, with all responsible parties signing like a partner or corporate officer(s), including:
- a completed Collection Information Statements (financial statement business – Form 10847) and attachments
- a copy of your last federal return,
- a copy of the taxpayer’s IRS Offer-in-Compromise agreement (if applicable),
- all bank statements 90 days prior to the close of operations for all bank accounts held,
- and copies of credit card statements for all credit cards held.
OIC Guidance for Individuals
Individuals need to provide a signed Statement of Offer. All responsible parties must sign (for example, a spouse). Moreover, the taxpayer(s) need to include the following:
- a completed Collection Information Statements (financial statement personal – Form 10896) and attachments
- social security statement of benefits or disability income for all submitting parties
- copies of the taxpayer’s last federal tax return for all submitting parties
- a copy of the taxpayer’s IRS Offer-in-Compromise agreement (if applicable),
- last three consecutive pay stubs for all parties submitting the offer,
- all bank statements for the last 90 days for all bank accounts held by all submitting parties
- copies of medical bills not covered by insurance,
- statements for court-ordered restitution, fines, child support, alimony, and student loans
- statement of any applicable prognosis from a doctor,
- copies of credit card statements for the last 90 days for credit cards held by all submitting parties,
- list of accounts receivable,
- copy or rental/lease agreements for property the taxpayer owns and leases, and
- copies or statements of dividend, trust income, 401K, or other retirement accounts for all submitting parties.
AZ Offer In Compromise Formula
Arizona does not specify the exact formula that it uses to determine if an offer is sufficient, but the ADOR requires that you include a copy of your IRS Offer-in-Compromise agreement with your application. The state most likely takes the IRS Offer In Compromise formula into consideration.
The IRS calculates an acceptable Offer In Compromise amount by first calculating how much they think you can pay them every month through an installment agreement by looking at your paystubs or profit and loss statement and subtracting your reasonable living expenses. The result is your monthly cash flow.
If you can pay the IRS the settlement amount within five months after acceptance, the IRS values your monthly cash flow by multiplying it by 12. If you cannot pay the settlement off within five months, the IRS will grant you 24 months to pay. However, they will instead multiply your monthly cash flow by 24. The IRS will also look at the value of all of your assets, and discount most assets by a value of 20%. Your cash flow multiplied by 12 or 24 (depending on the time in which you could pay the IRS) plus your asset value is the minimum amount that the IRS will typically be willing to accept.
Other Considerations Regarding an AZ OIC
ADOR will notify the taxpayer of acceptance or denial via snail mail. Furthermore, if an offer in compromise is rejected, there is no right to contest the amount of the tax liability in court or otherwise. An Offer in Compromise can be paid in full or paid in full within 30, 60, or 90 days of the acceptance of the offer. If the taxpayer was previously on an AZ Installment Agreement or payment plan, the taxpayer must continue to make payments until written notification of an OIC acceptance. Installment agreement payments do not count toward the offer amount. Moreover, the state will take any amounts due to the taxpayer for overpayments of tax before the OIC is fully satisfied.
While ADOR reviews a taxpayer’s OIC, the Arizona Department of Revenue may withhold activities unless the department finds that collection may be jeopardized by a delay. The decision to resume collection activities, including the filing of liens, may be appealed to a Problem Resolution Officer. The decision of the Problem Resolution officer is final.
If a taxpayer is denied an offer in compromise, he or she may want to pursue a Payment Arrangement to pay in installments over a specific period of time.
Taxpayers who cannot meet the terms of an AZ installment payment plan may want to consider an Arizona OIC. Moreover, because of the complex paperwork and cumbersome process, taxpayers should work with a licensed tax professional or tax relief firm. To see if you are a good candidate for an Offer in Compromise. To find a tax professional with experience in resolving Arizona state tax issues with an Offer in Compromise, visit here, otherwise start your search below.
Disclaimer: The content on this website is for educational purposes only. Moreover, it does not serve as legal or tax advice. For specific help regarding your tax situation, contact a licensed tax professional or tax attorney.